Half of Britain’s 2,500 remaining smaller housebuilders could crash into insolvency by the end of this parliament as a consequence of the cost of industry regulations, a report will warn this week.
Sky News has seen a document to be published on Tuesday – ahead of the government’s spending review – which will refer to “a perfect storm of costs” that threatens to wipe out the profits of SME housebuilders.
The bleak forecast is the principal conclusion of a report produced jointly by the public affairs firm WPI Strategy and ChamberlainWalker, an economics consultancy specialising in housing and planning.
It casts a fresh shadow over the government’s target of building 1.5m homes during the course of this parliament – one of its most important manifesto commitments ahead of last year’s landslide victory.
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On Monday, ministers said the use of a new artificial intelligence tool would facilitate the acceleration of planning permissions by reducing the reliance on paper documents.
“For too long, our outdated planning system has held back our country- slowing down the development of vital infrastructure and making it harder to get the homes we need built,” Sir Keir Starmer said.
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“This government is working hand in hand with business to change that. With [new AI tool] Extract, we’re harnessing the power of AI to help planning officers cut red tape, speed up decisions, and unlock the new homes for hard-working people as part of our Plan for Change.
“It’s a bold step forward in our mission to build 1.5 million more homes and deliver a planning system that’s fit for the 21st century.”
The WPI/ChamberlainWalker report will warn, however, that at the current rate of failure among SME builders, as many as 75,000 fewer homes would be built by smaller housebuilders before the next general election is due to be held in 2029.
It will say that recently introduced regulations such as the Building Safety Levy have added close to £5bn of annual costs to housebuilders.
The Future Homes Standard, Biodiversity Net Gain, accessibility rules and electric vehicle charging requirements are among the other incremental costs facing the sector.
Labour and materials costs are also rising, while house prices have flatlined, adding to the pressure on the industry, with smaller players disproportionately affected, the report will add.
Sean Worth, a director at WPI Strategy, said: “A diverse range of housebuilders is important to ensuring the country is able to meet its headline housing target.
“It is also critical to maintaining a competitive market.”
“The government has rightly acknowledged the importance of supporting small and medium sized builders.
“However, a perfect storm of costs inherited from the past few years as well as additional regulatory burdens means that without urgent assistance we could see half all of SME builders starting insolvency proceedings by the end of the parliament.”
